Sen. Levin Supports PCAOB Proposal

Potty Mouth Carl Levin (Senator and Chair of Senate Permanent Subcommittee on Investigations), famous for his “sh*tty deal” comments to Goldman Sachs executives, has sent a letter (Jan. 3, 2012) to the PCAOB in support of a proposal to require that the lead partner’s name be disclosed (with signature) within the audit opinion attached to annual corporate annual financial statements and listed in an audit firm’s annual report to the PCAOB.

Levin prefaces his support with the following statement,

Poor quality audits of public corporations continue to plague the U.S. investment community, allowing misleading accounting, outright frauds, and substantial losses to occur … These prominent audit failures indicate that more needs to be done to encourage accurate and effective audits of public corporations and increase accountability for poor auditing practices.

Well said, Senator Levin. It is not only bloggers that note the poor quality of large audit firm audits of large publicly traded corporations, it is also key members of governmental oversight. The only people who don’t agree are the leaders and partners of the large audit firms that provide the poor quality audits. They state that audit quality is fine, and nothing should be done that could negatively affect it (such as naming the lead audit partner or mandating auditor rotation).

Levin notes five reasons for supporting that the lead auditor’s name be disclosed:

It would increase audit quality. Lead auditors would now perceive that they are more accountable for their work, and would strive to avoid generating poor audit opinions.

It would strengthen audit transparency by shedding light on the audit process and key communicators. It would make it possible for the public to evaluate senior audit officials.

It would strengthen partner and audit firm accountability for audit failures. This would signal regulatory intent that both firm and partner are to be held accountable.

It would increase auditor independence by making it possible to identify when changes in key personnel are made.

Key corporate officers now must sign public reports and disclosures. This proposal would increase auditor accountability so that it would be in line with other financial professionals.

Senator Levin, I think you have done an excellent job in reasoning through a controversial issue.